One U.S. city has more data center space than all of Canada, but some data centers are being lured up to the 'True North' by inexpensive power and privacy concerns in the U.S.

Canadian data centers are increasingly alluring to North American data center customers because of lower power costs and data privacy protection.

However, data center pros should carefully consider whether sending their business north of the border makes sense. Canada's countrywide data center market is equal in size to the largest market in the U.S. -- northern Virginia -- meaning reduced competition and potentially higher prices.

Some companies are attracted by increased privacy protections available with data residing outside of the United States. The six chartered banks in Canada, for example, won't put data in the U.S. Amazon Web Services (AWS) and Microsoft Azure have announced new data centers in Canada because of privacy laws and concerns about surveillance in the U.S., said Bryan Loewen, executive managing director of the global data center practice at Newmark Grubb Knight Frank in Dallas.

Canadians are concerned about where their data resides and often want to keep it in their own country, he said.

It is rare for Canadian companies to have data residing outside of Canada, said Patrick David, CEO at COLO-D Inc., the largest neutral colocation provider in eastern Canada, based in Drummondville, Que.

One company that lures customers with its Canadian presence is Cogeco Data Services Inc., the Toronto-based parent of PEER 1 Hosting.

"We can guarantee to our customers that their data will stay in Canada," said Ben Young, the company's vice president and general counsel. "[This] has been a huge competitive advantage for us."

"We're seeing it from startups to enterprise businesses," said Young, a U.S. citizen living in Canada. "The U.S. definitely has a brand problem right now." The U.S. government has gotten major cloud service providers to hand over information, and "Canada takes advantage of that," Young said.

Canada, he said, is "a more customer-friendly place to have data."

David calculated about 50% of customers in Canada are from the U.S., 40% are from Canada and 10% are from other international locations. While many American companies have a presence in Canada, it is rare for a Canadian company to have operations outside of Canada, he noted.

Snooping scaredy-cats seek Canada

Looking at data privacy laws by geographic region is an important consideration when selecting a data center location, Young said.

In the U.S., hosting providers are drastically changing their policies to comply with the minimum requirement, while telling customers they make it harder for the government to access data, Young said.

"Surveillance is the crack cocaine of government," Young said. "Once they get it, they want more."

The expansion of AWS and Azure outside of the U.S. has likely been, in part, because of snooping concerns in the U.S., according to Duncan McGregor, vice president of engineering and operations at Cogeco.

Last year, a survey by Cogeco found that 77% of the enterprises it surveyed in Canada and the United Kingdom would sacrifice some latency for the security of being outside the U.S. Only 19% would make the opposite tradeoff.

Coming to America via Canada

Some users are also driven to Canada simply for geographic diversity and to expand their global footprint, McGregor said. Loewen cited two clients -- CenturyLink and Sungard Availability Services -- that have opened data centers in Canada to get closer to customers amid growing domestic demand.

Many other companies also have expanded recently in Canada, including Cologix Inc., Internap Corp., PEER 1 Hosting, Q9 Networks Inc. and Rogers Communications Inc., he pointed out. Loewen said he knows of a "large cloud operator" that is evaluating paper mills in Canada, where it could possibly open data centers.

Meanwhile, enterprises that already have major operations in Canada are "building what they can foreseeably use themselves," Loewen said, while cloud and managed service providers are building for what they think they will need in five years -- and beyond.

For years, users in Montreal may have been well-served by data centers in New Jersey, but increased reliance upon data, including voice and video with bandwidth sensitivities, means data centers are needed in Canada, he said.

On the other hand, some companies are seeing Canada as the perfect place for a data center to serve parts of the U.S.

The two largest segments of the market for Canadian data centers are gaming companies and cloud providers. Some European cloud providers looking to serve North America have been attracted to Canada, Loewen said. U.S.-based telecommunications companies are also often attracted to Canada to serve customers there, COLO-D's David added.

Economics at work: Fewer choices can mean higher prices

There is little wholesale colocation space in Canada, "very few choices, compared to the U.S. options," Loewen said. There are more retail options for colocation space, he said, estimating it at about 70 providers. The lack of competition makes some cities in Canada more expensive than similarly sized U.S. cities, where data center customers may be able to find better pricing, he said.

The most significant opportunity for savings comes from low power costs and nearly year-round free cooling in some areas of Canada.

The impact of data centers on the environment is getting increased attention from some enterprises and cloud providers, and the widespread reliability of renewable energy attracts some to Canada, David said.

"Almost everything here is driven by renewable energy," he said.

Renewable energy aside, energy costs average about 5 cents per kilowatt hour in Canada, which makes it "one of the most competitive markets for the cost of energy in North America," he said.

Customers can also be attracted to cloud providers that have a data center outside of the U.S., he said

The province of Quebec is different from the rest of Canada in many ways, including its language and culture -- and its data center customer behavior. In Quebec, users like to be hosted within the province -- which typically means Montreal, according to Geoffrey Vande Weerdt, managing director of Montreal-based Ecritel Inc., which has 15 data centers, with customers in the U.S. and Canada.

A Chicago-based enterprise, by contrast, may not care whether it is using a data center in Minnesota or New York, as long as the quality is satisfactory, he said.

Canadian customers often insist on keeping their data in Canada, but Vande Weerdt noted that many users don't know or care where their data resides -- in the U.S. or Canada, or Ireland or India, or anywhere else in the word.

"Everybody can be a cloud provider today," he said. "You can put a server in your garage and be the cloud."

One of the most significant differences between the U.S. and Canada is that Canada is bilingual and much smaller than the U.S. Another difference is in how customers evaluate their options, Van de Weerdt said. In the U.S., customers often ask for proof of certifications, such as PCI DSS and SSAE16. While in Canada, prospective buyers often ask to visit the data center and take a tour, often asking about the generators, uninterruptible power supply and cross-connects.

Canadian data center operators often field questions from U.S. customers about how their data centers are run, specifically about uptime and security. In those terms, there's nothing unique about operating a data center in Canada, according to McGregor, the engineering VP at Cogeco.

One place where the U.S. undoubtedly still holds the upper hand, Vande Weerdt said, is when it comes to data center innovation.

"In Canada, most of the time, we used what you have developed," he said, referring to the U.S.

Robert Gates covers data centers, data center strategies, server technologies, converged and hyper-converged infrastructure and open source operating systems for SearchDataCenter. Follow him on Twitter @RBGatesTT or email him at rgates@techtarget.com.

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